For centuries, gold has served as a practical and symbolic store of value for people around the globe. Firmly rooted historically in art and culture, gold was an ancient medium of exchange before the concept of paper currency came into being. Over time, gold has persisted as a standard of value. Financial markets have embraced this idea in the modern days of trading and commerce. Even though gold is an asset class that people turn to for wealth, fiat currencies still are the most popular way of ensuring liquidity and holding wealth. In fact, according to the 2021 Capgemini World Wealth Report, investors were holding almost 25% of their portfolio in cash.
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However, with the advent of technology, there’s now available digital gold – a brand new form of the precious yellow metal, and it’s time we started deliberating on whether digital gold can be a cash alternative.
In fiat currencies, cash is dependent on governments, is affected by economic slides and market fluctuations, and does not have an intrinsic value. Digital gold is an asset that an investor can purchase at the tap of a button via a smartphone or personal computer. The digital purchase will be commensurated with real physical gold, securely stored in a safety vault, insured, and allocated to the investor. This gold has an inherent value of its own. It is one of the primary reasons behind its popularity as an asset class and, for a sizable fraction of the investor community, a must-have in their portfolios. Unlike currencies, it is also an investment option that helps hedge risks against market fluctuations and economic crises.
Before regular currencies took over, for more than 6000 years, gold had been a medium of exchange and had historically facilitated trade and commerce. In financial crises, fiat currencies become volatile, tied to governments and key economic indicators. Gold, however, has been different.
Gold has traditionally been used as a more stable alternative historically during these times of crises and, in the case of digital gold, if required, can be sold at market rates at the click of a button. When economies face a downturn, and large corporations do not fare well, gold is the investment option that has historically managed to hold its own and has preserved its purchasing power. At the same time, most other markets dip.
Similarly, when interest rates are low over time, money gets cycled into the economy. During these times, central banks have been known to resort to quantitative easing, a form of unconventional monetary policy in which they purchase longer-term securities from the open market to increase the money supply and encourage lending and investment. During these times, when the economy might face inflation, digital gold can be the next-gen inflation hedge option in an investment portfolio, creating a new, easily accessible volatility reduction opportunity.
Further to these stability factors, with the advent of blockchain technology, digital gold also offers another proposition- reliable and immutable ownership. While not all digital gold solutions use blockchain technology, it is becoming an increasingly utilized tool due to its ability to create a strict and detailed record of transactions. This offers both the user and the solution an increased level of security and peace of mind with completing every transaction within the platform. All ownership information represented in the digital format can be entered and stored digitally in the blockchain ledger for some digital gold solutions. By creating a digital record for a physical asset with blockchain, gold ownership can be transferred instantly, around the clock, without moving the physical gold stored in a vault. The digital record evidences the movement of value. This transforms the proposition of gold from a store of value into a medium of exchange and a genuine alternative to cash.
The Argument for Digital Gold
Based on the evidence presented, digital gold is rapidly becoming a truly viable answer to the shortcomings of fiat currency. Gold’s history as a resilient and reliable store of value places it ahead of most fiat currencies which are constantly vulnerable to the inevitability of inflation. While gold used only to be a safeguarded asset locked away somewhere in a physical vault, it can now be mobile, usable, and 100 percent digital as legitimate means of currency. As inflation rates rise and the value of fiat currency plummets, it’s time to seriously consider the argument for gold as a serious contender as an alternative to cash.
(By Ashraf Rizvi, Founder & CEO, Gilded)